The NHL's Problem: Only Three Teams Are Making Real Money

The NHL locked out its players Saturday night at midnight when its collective bargaining agreement expired. It is the league's fourth work stoppage in the last 20 years. Like every stoppage, this one is about money and how to divvy up what is now a $3.3 billion pie.

If you are looking for comparisons among sports leagues, think NBA and not NFL, which both had lockouts over the past 14 months. The NFL lockout had only a single preseason game cancelled, while NBA owners lost 20% of their regular season and had to pack in the remaining 80% of games in five months. The NHL is scheduled to begin its regular season October 11 and that date is in serious jeopardy.

The NHL's problem is the widespread disparity in profits for its 30 teams. We estimated that 18 teams lost money during the 2010-11 season in our annual look at the business of hockey. Several other teams barely eked out a profit, but the league's most flush teams made a killing. The Toronto Maple Leafs, New York Rangers and Montreal Canadiens had an operating profit (in the sense of earnings before interest, taxes, depreciation and amortization) of $171 million combined. The other 27 NHL teams lost a collective $44 million. If you add the Vancouver Canucks and Edmonton Oilers to the fat cats ledger, profits hit $212 million with the remaining 25 teams posting a loss of $86 million.

The concentration of wealth at the top is similar in the NBA. The three most profitable teams during the 2010-11 season, New York Knicks, Chicago Bulls and Cleveland Cavaliers (a 1-year anomaly where the team sold out its arena with a cut-rate payroll ahead of LeBron James skipping town), earned $167 million. The total represented 96% of the league's estimated profits of $175 million. The NBA tripled revenue sharing in its new CBA to help prop up small market teams.

Why did the NFL settle with its players before any regular season games were lost? Look at the numbers. The NFL's richest teams, Dallas Cowboys, New England Patriots and Washington Redskins, earned a staggering $454 million last season. Yet, that total represented just 35% of the NFL's $1.3 billion in total operating profit. The NFL cut back its supplemental revenue sharing program in its latest CBA. It expects $45 billion in new TV agreements to prop up the low revenue teams and keep their profit margins high.

Baseball is the most equitable major U.S. sports league when it comes to sharing the wealth. No wonder it will have had 21 years of labor peace by the time its current CBA expires in 2016. The top three earners last season, Cleveland Indians, Kansas City Royals and Chicago Cubs, made $87 million, which is only 20% of MLB's $432 million in operating profit. High-revenue teams like the New York Yankees and Boston Red Sox are content to run baseball operations with small profits, while making a killing through their ownership stakes in the regional sports networks that broadcast their games.

MLB has the heftiest supplemental revenue sharing system with roughly $400 million changing hands last season from the high revenue teams to the low revenue ones. The Yankees alone kicked in $110 million in revenue sharing in 2011.

The NHL is not in dire financial straits as it was in 2004 when a lockout caused the cancellation of an entire season. It does need the top teams to share more of the wealth if it wants to be healthier financially. The league currently shares about $150 million of its revenue and the league has proposed bumping that up to $190 million. The players association is looking for revenue sharing closer to $250 million. We know why the Maple Leafs, Rangers and Canadiens do not want that much revenue sharing. What about the other 27 teams?